How an IPO works in India: the process from filing to listing, step by step
The stages of an initial public offering in India: the offer document, price band, bidding, allotment and listing, and the terms you meet along the way. A process guide with no view on any offer.
An initial public offering (IPO) is the first time a company sells its shares to the public, after which the shares are listed and trade on a stock exchange. This guide explains the steps and the terms. It is about the process. It does not say whether any particular offer is good or bad, and it is not a recommendation to apply to any offer.
At a glance
- The company hires merchant bankers and prepares an offer document.
- It files a draft offer document with SEBI and receives comments.
- It files the final red herring prospectus and announces the price band and dates.
- The issue opens for bidding, usually for a few working days.
- Shares are allotted, refunds are made, and the shares list on the exchange.
1. Preparing the offer
A company works with book running lead managers, usually investment banks, who manage the issue. Together with lawyers and auditors they prepare the offer document, which describes the business, the financials, the risks and what the money will be used for.
2. The draft and the final document
The company files a draft red herring prospectus (DRHP) with SEBI, which is also public. SEBI reviews it and the company answers comments. After that, the company files the red herring prospectus (RHP), which contains the price band and dates. The offer document is the most important source for a reader: it lists the objects of the issue (what the money is for) and the risk factors the company itself identifies.
3. Types of issue
- Fresh issue: new shares are created and the money goes to the company.
- Offer for sale (OFS): existing shareholders sell some of their shares, and the money goes to them, not to the company.
- Many IPOs combine the two. The offer document states how much of each.
4. Price band, lot and bidding
- Price band: the range within which bids can be placed, for example ₹100 to ₹105 per share. The final price, the issue price, is fixed within it. See how to read a price band and lot size.
- Lot size: the minimum number of shares in one bid. Bids are in multiples of a lot.
- Bidding is done through a broker or bank using the ASBA system, and for smaller bids through UPI: the amount is blocked in your account until allotment and debited only if shares are allotted.
- Investor categories have separate portions: qualified institutional buyers, non-institutional investors and retail individual investors (bids up to a stated limit). Allotment is done category by category.
5. Allotment and listing
After the issue closes, the basis of allotment is finalised. If a category is oversubscribed, not every bid gets shares. Money for unallotted bids is unblocked. The shares are credited to the demat account and then listed on the exchange, which is when they begin to trade. Listing follows within a few working days of the issue closing.
Terms you will meet
| Term | Meaning |
|---|---|
| Subscription | How many times the shares on offer were bid for. It is a fact about demand, not a measure of quality. |
| Anchor investors | Large institutions that are allotted a portion the day before the issue opens. |
| Lock-in | A period during which certain holders, such as promoters, cannot sell. |
| Promoters | The people or entities that founded or control the company. |
| Face value | The nominal value of a share, unrelated to its market price. |
| Listing price | The price at which the shares first trade. It can differ from the issue price. |
What an offer document contains
Business and industry description, financial statements for several years, promoter and management details, risk factors, legal proceedings, the objects of the issue and the terms of the offer. Reading the risk factors and the use of proceeds tells you what the company itself says about the offer.
Common questions
Does a high subscription mean a good company? No. It means many bids were placed. The pages on company filings and financial statements show how to read the underlying numbers.
Is an IPO different from a follow-on issue? Yes. A follow-on offer is made by a company that is already listed.
Where do I find an offer document? On SEBI’s site, the exchanges’ sites and the lead managers’ sites.
Will this site tell me whether to apply? No. We do not give views on offers. See our disclaimer.